How blockchain can build trust in the digital economy
While blockchain is, at the moment, mainly associated in people’s minds with cryptocurrencies, its open technology brings further possibilities in a number of other areas. In particular, it allows organisations and individuals to carry out secure transactions directly with one another.
What makes blockchain so good at this is the fact that transactions are chained to each other and this guarantees integrity by making them hard to tamper with. This makes it attractive for many applications, including identity management, contract control, compliance and many more.
Because it is based on a distributed ledger, there’s no need for intermediaries to check the veracity of transactions. Records are also automatically stamped with the date, time and participant details, enhancing security and providing a ready-made audit trail. Computers around the world, known as ‘miners’, oversee and update the blockchain. Any attempt to tamper with a single transaction will immediately show up, because the record will no longer be reconciled with the ones either side and the miners will refuse to agree the transfer. In exchange for their activity, miners are rewarded with payments, hence the popularity of cryptocurrency mining.
Ultimately, blockchain is about building trust in transactions. Because it allows any kind of transaction where there’s an exchange of something of value to be carried out remotely and securely, it becomes possible to deal with almost anyone, without having to worry about the safety of the transaction.
The next logical step from this is a move towards smart contracts, which can be self enforcing. Again, this cuts out the middleman, as there’s no need to have anyone verify the details. Therefore, it has implications not only for commerce, but for legal use too. The music industry, for example, would be able to track downloads and radio plays, ensuring that artists got paid without any need for a third party to verify the figures.
This isn’t to say that blockchain is perfect. As with any complex software, there is the potential for flaws in the code. Since there is no centralised authority to regulate blockchain security, it’s possible that weaknesses could go unnoticed. Of course, no system is completely safe from human nature. People need to keep their passwords and private keys secure and be wary of services that offer to store this information in the cloud. Recent attempts to hack Bitcoin accounts, for example, have focused not on breaking the technology, but on getting hold of user’s wallet backup files.
There is also an issue in terms of the chain becoming so large as to be unwieldy. Although blockchain is still relatively niche, its chain is currently estimated to be 8,000 times longer than the Bible (SOURCE: http://www.economist.com/news/special-report/21650295-or-it-next-big-thing). If used for more mainstream tasks, the size of the chain would be much larger.
It is theoretically possible that someone with control of enough miners could allow fake transactions, but since there are more than 10,000 miners spread across the world, it’s unlikely.
This article was written by Ben Palmer, Managing Director, IJB Global.